Investors need to keep reasonable expectations

The Ticker

May 15, 1998|By Julius Westheimer

LET'S KEEP this bull market in perspective.

"We may back and fill but then it's off to the races to Dow Jones 10,000." (Fund Profit Alert)

"This historic bull market has room to run. Corrections will be brief. Then stocks typically rise higher than ever." (Jane Bryant Quinn)

"This is a breathtaking bull market, linking Wall Street to Main Street. Even if you keep money under the mattress, your financial health is tied to the ticker." (Newsweek magazine)

Although the Dow Jones industrials and S&P 500 indexes have returned an average of 10.7 percent annually since 1926, I find many investors expecting recent above-average returns as a matter of course, forgetting that stocks historically gravitate to their historic norms.

The last few years have been exceptional. The Institute of Certified Planners says, "Dow and S&P 500 stocks annually returned a strong 15.3 percent from 1987 to 1996, 22.6 percent in 1997, and the S&P index returned an astounding annual average of 17.4 percent these last three years."

A recent poll by Opinion Research Corp. found that investors expect returns to average 17.4 percent over the next decade, commenting, "Many investors have lost perspective of the longer-term historical averages."

There are things to keep in mind, though:

Keep reasonable expectations. By understanding the concept of "stocks eventually return to historical averages," you might not panic in a plunge.

Evaluate your long-term objectives. If you're saving for retirement, a long, sharp decline in the market is no reason to abandon stocks.

Buy shares at regular six-month intervals. Thus when stocks dive, you're buying more shares at bargain prices.

Go to experienced professionals who have suffered through "down" markets, or visit young people who have studied both bear and bull markets.

Don't "time" the market. Invest money when you have it.

Buy stocks of companies with increasing earnings and dividends.

Pub Date: 5/15/98

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